Baltic Dry Index, Construction Spending: More Good News

This index of shipping costs for bulk commodities has moved up solidly for the past seven months. Many people dismiss it as an indicator of global growth, however, arguing that the ships are being monopolized by Chinese demand for things like iron ore, and all they are doing is stockpiling the stuff. I prefer to think that the Chinese have a reason for buying commodities, and that it has to do with the fact that their economy is growing at multiples of most other economies in the world. What's good for China is good for the world; the more they produce the more they must consume.

Residential construction was still declining in May, but it has shrunk so much relative to GDP (it's now down to about 2.5% of GDP, the lowest reading on record) that a small decline hardly matters to the overall economy at this point. Non residential construction activity has held up better than most (including me) expected, however. Indeed, the fact that it is up 4% from the January low is rather impressive considering all the bad news that has been out there since last September.

Comments

[ciel:]

"The Chinese have to consume more" - Oh, yes, they are such a consumption powerhouse.

At least you could be partly right - at the rate things are going consumption-wise in the rest of the world, they actually might be the relative consumption leader in another year or two of this mess.

The non-res bubble looks set to fall as hard or harder as residential has. Non-res almost always starts to tank long after residential began its fall. No surprise that it has still held up, so far.

Jul 02 10:57 AM

[Trend Surfer:]

Well, it makes little sense that while their exports and official economic performance statistics showed slowdown that their commodity purchases maintained and even increased.

Some analysts are also speculating that China is switching it's US moving away from fiat currency to actual hard assets including commodities in storing their reserves.

Jul 02 07:01 PM

[I need more...:]

" MORE GOOD NEWS"
You really should try pulling your head out of your, well, pull it out.

Jul 03 04:34 AM

[Wizler:]

They may be stockpiling to get out of the dollar and spend some of their holdings before Obamasan inflates the debt away.

I understand roughly half of the worlds clothes and shoes are made in China. Retail spending in the Western economies is dropping.

Is Chinese consumption making up that demand? I haven't seen that swing in the Chinese consumption, but please show me the math.

Could the swing in the baltic index be partially fueled by a momentum trade with all the banks flush with anti-deflation (inflation) liquidity?

Hmm if I was a big bank with a large equity portfolio, how could I seed some green shoot data....

Jul 03 07:45 AM